Four key decisions that led to the crisis

Slate magazine is running a series onĀ  Making sense of the credit debacle. Recently Barry Ritholtz of The Big Picture blog, listed a couple of key decisions that he thinks contributed to the crisis.

What led to the current situation were numerous legislative, ideological, and business decisions that worked together to create a systemic failure. Consider each of the following:

  • The Commodities Futures Modernization Act 2000 allowed unregulated derivatives to run wild.
  • The repeal of Glass-Steagall 1999 allowed depository banks to become far more intertwined with Wall Street.
  • From 2001-03, Fed Chair Alan Greenspan took rates down to unprecedented levels, causing 1 a mad scramble for yield and 2 an enormous housing boom.
  • In 2004 the SEC allowed the five big investment banks to leverage up from 12-to-1 to 35-to-1 or more.

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